Getting the most out of office refurbishment
Reducing carbon emissions and improving the occupier experience are the two imperatives of the modern office market.
Real estate is asking how it can continue to deliver innovative new spaces which meet the demands of post-pandemic occupiers, whilst also addressing its environmental impact.
Thus sustainable refurbishment is an ever-more popular option among property investors. It is less carbon intensive than new developments, without sacrificing occupier experience or quality of space.
However, while the potential benefits of retrofit projects are manifest, they come with costs and risks which many investors overlook from the outset. Early and thorough due diligence is vital for understanding and managing these costs and risks, significantly improving the likelihood of a successful, cost-effective retrofit.
Rapidly rising energy costs are creating a financial imperative for landlords to measure and reduce their energy consumption. Installing more accurate measurement technology and improving the efficiency of assets will be key in the future.
New development and refurbishment projects alike are also subject to increasingly strict ESG regulations, threatening the viability of non-compliant assets. Meeting these requirements is more than a box-ticking exercise. Raising sustainability ratings requires significant investment and comes with a heavy administrative burden.
The costs of reducing and measuring carbon emissions are difficult to quantify in a vacuum. These calculations are further complicated by uncertain market conditions.
Rising build costs
In the current inflationary environment, build costs are rising and tendering is becoming ever more difficult. With prices rising rapidly, contractors are unwilling to be held to forward pricing.
Against this backdrop, the viability of refurbishment projects is often contingent on a sound understanding of expected costs. Engaging an expert due diligence team as early as possible is the most reliable way to understand how far budgets will stretch and identify opportunities to reduce costs.
As a first step, landlords must get under the skin of their assets and familiarise themselves with the bones to ascertain what is achievable through refurbishment. Smaller, older properties can present unique challenges, yet energy efficiency targets can be easier to reach on older assets with less glass on their façades. Occupier wellbeing may also be easier to bolster in older buildings where natural ventilation can be introduced via opening windows.
Expert due diligence teams can also help to maximise floor space, key to increasing income. Infilling atria and adding extra floors or terraces will cost more up front but may pay off in the long run. Due diligence professionals can determine where these options are viable.
To combat uncertainty in the tendering process, a team of due diligence and refurbishment experts can facilitate partnerships with contractors in place of traditional supplier-procurer relationships. As the ‘best price wins’ model has been somewhat supplanted by the need for medium-term certainty, these partnerships can be of significant mutual benefit. Transparency between landlords and contractors around budget and project scope fosters collaboration on costs.
The value-add potential of refurbishment projects presents a huge opportunity for investors. When managed well, they can deliver exceptional workspaces in older properties which are better for landlords, occupiers and the planet than new developments. However, they are complex undertakings. Landlords must engage specialists to manage budgets and maximise the potential of retrofits.
Charles Ingram Evans is head of project & building consultancy at Knight Frank